China to complete VAT reform by July 2016
China has confirmed this week that the reform of its Value Added Tax regime will be completed before July 2016.
The Chinese VAT reforms will remove Business Tax from a range of sectors, including retail, real estate, construction and financial services. Most other sectors have seen the introduction of a OECD-style VAT since the reforms started with a 2012 pilot.
The overhaul has eliminated much of the administration burden on companies, but also the cascading taxation in the old VAT regime which offered very limited opportunity for companies to recover VAT that they were charged through the production chain. This led to many companies focusing on VAT-exempt exports. The remove of VAT is a key element of China’s pivot away from exports to internal consumption.
The reforms are costing the government about €65 billion per annum in reduced tax revenues.